How to Quit Your Bank

NEW YORK (MainStreet) – Bank of America customers are angry. In the wake of the bank’s decision to implement a $5 monthly debit card fee starting next year, a poll conducted by our sister site TheStreet found that 83% of readers are promising to leave the bank.

How many of them will actually make good on that promise is an open question. Experts we spoke to said that many of those grumbling about the new fee will ultimately decide to stick with the bank and adjust their spending behavior. The number-one reason that people will stay put? The difficult, complicated process of switching banks.

“The time [and] mental energy required to change banks may be a greater cost to consumers than what they’ll lose on fees,” Kit Yarrow, a consumer psychology expert, told MainStreet.

Still, some people will be angry enough about the fees to brave that process. And it’s not just Bank of America: Wells Fargo is also experimenting with implementing similar debit card fees, and other large banks have raised other fees on checking accounts in response to the Durbin Amendment, which capped debit card swipe fees and cut into big banks’ profit margins. If fees are driving you to switch banks, here’s what you need to do.

Choose a New Bank

You’re not going to just march down to your bank, cancel your account and stuff all the money under your mattress. There are loose ends to tie up before you close up shop – checks that need to clear, for instance – so you’ll want to be established at a new banking institution before you can actually go through with the process of closing your first account.

“If you do it hastily and just close your account, you could run into headaches,” says Paul Golden of the National Endowment for Financial Education. “Open a new account before you close the old one.”

Where you choose to open that account is the big question.

As we’ve said, Bank of America is by no means the only major bank implementing fees on checking account holders. The big banks are expected to lose around $6.6 billion a year due to the Durbin Amendment, and they’re all searching for ways to make up for that shortfall through fees on checking accounts. In some cases those fees are easily avoided so long as you have direct deposit and a minimum balance; in the case of Bank of America, you can only duck the new fee if you stop using your debit card at merchants, which many customers aren’t willing to do.

As such, look at your own spending behavior and determine whether you’ll be able to duck the fees at the new bank you’re thinking of joining.

“Determine qualifications for ‘free’ checking – they may have a minimum balance requirement or [require] automatic deposits,” says Susan Chesney of Integrated Planning Solutions, a financial services firm. “Check all other potential fees charged, and ask if the new bank is considering charging any new ones.”

She warns, though, that you might not get a reliable answer to that last question, as your new bank could change its fee structure at some point down the road and force you to switch again. Indeed, that’s one of the biggest challenges here: Trying to pick a new bank that not only has a checking account that’s free for you, but that won’t suddenly pile on new fees six months down the line.

“I think it’s likely that other big banks are going to introduce new fees, though I’m not sure if it’s going to look like Bank of America,” says Howard Seibel, a financial services marketing expert and founder of Wharton Strategic Services. “The savvier banks will give [customers] ways to avoid the fees.”

For now, the only other major banks that we know are considering debit card fees are Chase and Wells Fargo, both of which are experimenting with such fees in select states. Whether they roll out those fees nationally, and whether other banks follow suit, may depend on how many Bank of America customers actually revolt.

“[The banks] don’t collude, but they do eyeball each other,” says Seibel. “They want to see how big the backlash is going to be.”

If you want to avoid fees altogether, your best bet is probably a small community bank or credit union. Institutions under $10 billion in total assets are exempt from the Durbin Amendment’s regulations, so there will be less pressure on these banks to make up for profit shortfalls. The downside, of course, is that many of these smaller banks are less capable of offering sophisticated online banking services, and their ATM networks tend to be a lot smaller, too; if you’re constantly using out-of-network ATMs because your new bank has a limited reach, then you may wind up paying more in fees than you would have with your old bank. Again, understanding your own spending habits is crucial.

Transfer Your Services

OK, you’ve picked your new bank and have your new checking account opened up. Now it’s time to make that your primary checking account.

“Anything you’ve been automatically transferring needs to get switched to the new account,” says Golden. “Get a couple months’ statements in front of you and see what you’re automatically transferring.”

That includes any automatic bill pay you have set up via online banking, but it also includes any services that automatically withdraw from your account via debit card or electronic transfer on a monthly basis, from your gym membership to your Netflix account. Shut down bill pay on your current account and re-establish it on the new one, and take appropriate steps to change the card on record with your subscription services (call your gym, change your account information on Netflix, and so on). And don’t forget your credit card – if you have your checking account set up to automatically pay off your balance each month, make sure it gets transferred to your new account or you could miss a payment and hurt your credit rating.

Have direct deposit through your employer? You’d better, if you want to get free checking at most large banks. That will need to be switched over as well.

Finally, remember to make sure all checks you’ve written from your old account have cleared before you start thinking of closing it down. A bounced check can be a pain for everyone involved.

“If you wrote a check to a family member and they’re sitting on it, you may want to nudge them,” says Golden. Monitor and Cancel

So you’ve changed the account for your direct deposit, transferred all your bill pay accounts and made appropriate arrangements to change the account of record on your various monthly services.

Now sit tight for a month, because chances are you may have missed something.

While your various liquidity, bill-paying and fee-avoiding needs will require you to maintain a minimum balance in your new account, it’s best if you can manage to keep a couple hundred bucks in your old account for the time being. That way, if there are any membership accounts you missed or uncashed checks you forgot, you don’t need to worry about paying a bounced-check or insufficient-funds fee when someone tries to collect from the old account. After all, you’re trying to avoid fees here, right?

“Leave enough money in the old account to cover your bills until the full transition has happened,” says financial adviser Jennifer Lazarus. “It can take a few months for all the bills to begin automatically drafting from your new account.”

Since the token balance you’ve left in the old account probably isn’t enough to stave off monthly maintenance fees, you should shut down the account as soon as you’re satisfied that all of your services have been transferred. The actual process of closing the account will depend on the bank’s policies; Bank of America, for instance, says that its account holders must send a signed letter via snail mail. Your own bank may allow you to close it in person.

“If you are closing in person, they’ll give you cash or a cashier’s check for the funds remaining,” says Golden. “If you do it by letter, tell them where to send the check or where to send the wire transfer.” However you do it, he says, make sure you get a confirmation of the account closure in the event of a fraudulent transaction on the old account.

Once the final remaining balance has been transferred to your new account (whether by wire, cash or check), Golden recommends shredding the checks and debit card associated with the old account to make sure you don’t accidentally use them.

Congratulations: You’ve switched banks. Now, just pray that your new bank doesn’t decide to implement any new fees.